The Art and Science Picking Stocks

Applying stock selection criteria is an important strategy employed by stock analysts and individual investors when they are analyzing the potential of particular stocks.  Essentially, if you’re going to pick stocks to add to your (or someone else’s) portfolio, you need to make educated and informed decisions about which investments make sense based on the stock holder’s risk tolerance.

Stock pickers aim to increase the total return on investment over a predetermined time or ‘holding period’.  Those who pick stocks must also take measures to limit risk within predetermined limits and they must also maintain an appropriate degree of diversity among any given portfolio.  The reason why diversity is important is so that an investor can lose everything if one company or industry suffers heavy losses and be left with no further capital to invest.  This investor would essentially have to exit “the game” and not be able to join in again until new capital was saved.  Capital preservation should be the highest priority of any long term investor.  A good stock picker should be able to provide selections in different sectors so a portfolio can withstand industry downturns.

As a result of the personal successes of several people employed to pick stocks (such as Warren Buffet), many systematic stock picking techniques have been created and employed over the years by various stock market experts.  Many of these tactics have become common knowledge now that automated computer software is available to use specific criteria to analyze trading patterns.  Getting involved usually costs a great deal of money and experience however.

Stock picking sites are readily available all over the internet.  Some are services available only to paid subscribers while others provide free picks to anyone that visits their website.  If you want to act on these picks and attempt to profit from them you will need a brokerage account.  In the past, brokerages were open only to those with substantial cash to invest and charged heavy commissions.  However, in recent years it has become simpler to open an account with a reputable online brokerage with a smaller amount of money.  The growth of online discount brokerages has really changed the stock trading industry by giving many more people access to the markets.  Many individuals and institutions still prefer to leave the stock picking and money management to the professionals at respected firms like Fidelity and Charles Schwab,

Beginning investors are often tempted by what seem like low cost stocks called “penny stocks” because their per share price is very low.  Such ‘penny-investments’ should be undertaken with caution however as they are generally much more volatile than more established companies with higher per share stock prices.  There are several reputable websites which will manage your portfolio of these incredibly cheap shares and most of them are run by current of former stock market workers in need of a few extra dollars commission on the side.  Alternatively, again, you can always learn to pick stocks and trade for yourself and others by attending business school or by studying the tried and tested methods of people like Peter Lynch.

Still, if you’re planning to pick stocks, it pays to remember the risks involved.  The stock picking game is all about risk verses reward.  When you are playing with real money it’s vital to remember that it is easier to lose great sums of money than it is to accumulate them with short term trading activities.